Tobacco as well as fizzy and energy drinks are expected to be taxed this year, the Minister of State for Financial Affairs announced.

Obaid Al Tayer was speaking on Wednesday, 15th March, 2017, as the Federal National Council approved a draft law that paves the way for value-added tax (VAT) and excise duties on selected items, by setting up a legal framework for taxation.

While the GCC countries have agreed to implement a 5 per cent VAT starting next year, Mr Al Tayer said a UAE law on excise duty for tobacco and fizzy and energy drinks is expected to be issued this year.

Duty on tobacco alone is expected to bring in Dh2 billion in annual revenues, he said, adding that it was too early to estimate revenues from drinks as consumption is likely to drop.

The cap for excise duty is 100 per cent, but “it could be less (and) depends on the law for each country,” the minister said.

It was crucial for GCC countries to implement VAT and excise duties at the same time.

“Countries that share borders with the UAE should implement it together to avoid hurting the economy of another country,” he said.

Yazan Alsaqer, a tax consultant in the UAE, said if VAT was not simultaneously applied across the GCC, retailers selling products in a country that has VAT will have to pay a 5 per cent tax at each GCC border where applicable.

“But if they implement it at the same point of time, it will be recognised at each entry, and you don’t have to pay it again until you re-sell it,” he said.

The risk of smuggling will rise if VAT and excise duties are applied in one country and not another, Mr Alsaqer said.

As Saudi Arabia has drafted its own law on excise duties, which is expected to be applied in April, “this will push the UAE to apply it as well”, he said.

The Saudi draft law also includes taxes on luxury goods and items that are harmful to health and the environment.

“A ministerial committee will decide what the unhealthy items are, so it could be juice with a high level of sugar,” Mr Alsaqer said.

He said consumers were expected to bear the burden of VAT for the first two years after it is implemented, after which the economy will adjust.

Member Abdulaziz Al Zaabi said he was concerned about how VAT will affect businesses.

“When fees and taxes are imposed on them, this will make it difficult to invest, especially the new generation,” said Mr Al Zaabi, from Ras Al Khaimah.

Mr Al Tayer said VAT was expected to bring investments down by only 0.06 per cent and the real gross domestic product by 0.04 per cent.

The law passed by the FNC stipulates that the fine for tax evasion should not exceed five times the value of the tax.

Mr Al Tayer said his ministry is still studying the economic implications of introducing other taxes, such as corporate taxes.